First Person: The New Normal in Home Refinancing

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Until a few years ago, all it took to refinance a home was good credit and a current property tax assessment. Thanks to tougher banking standards and new Fannie Mae requirements, what once was a simple process has turned into a 7-week headache for my husband and me. Why? The never ending list of crazy conditions and documents that our lender continues to ask for.

We're in the middle of refinancing a small rental property to take advantage of the lower rates. The last time we refinanced, the process took about 10 days. This latest refinance is in its seventh week thanks to mountains of paperwork and crazy rules. Some conditions are ones that can be expected in a refinance such as a credit report, two years of tax returns, W-2s, an appraisal, and prepaid taxes and insurance. Others are downright ridiculous. Here is a sampling of some of the crazy conditions our lender has required.

Explanation of variable income. I'm a freelancer and have 20 years of tax returns to prove that earnings are pretty consistent from year to year. That wasn't good enough for the underwriter who required a letter explaining why my 2012 income was $300 less than my 2011, and if my 2013 income will be higher (or lower) than 2012 and the reasons why.

Nine months of reserves. While lenders may require six months of payment reserves for a new home purchase, this was never a condition of a refinance until only recently. Our lender is requiring six months of a payment reserve for our rental property AND an additional three months of reserves for our personal residence which isn't even part of the refinance.

Letters from brokers. You would think that a copy of our most recent brokerage statement for 401(k)s and IRAs would be proof enough of cash reserves. Not so! Our lenders wanted an official document from the brokerage firm verifying our balance and the terms of withdrawal.

Cosigner statements. I'm a military mom of 2 sons who are stationed overseas. I'm also the cosigner on their local bank accounts so I'll have access to funds to pay their bills, postage, etc. Our underwriter also asked for signed letters from my sons to the effect that I had 100% access to their funds...for what reason, I have no idea.

Along with these conditions, we've also had to sign over 50 separate documents and provide numerous copies of miscellaneous forms such as tenant leases on all our properties, statements from other banks, and even a printout of my Pay Pal transactions for the year.

While I can understand that banks are being extra cautious when it comes to lending money, my lender's requirements seem to be over the top. Had I known what a great big hassle this refinance would turn out to be, I would have spent more time shopping the competition for easier terms instead of settling for the same old bank that we've always used.

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